Why Palantir Deserves More Attention Than BigBear.ai in Defense AI

The Valuation Gap Tells the Story

BigBear.ai trades at roughly 22 times forward sales, while Palantir commands a premium at 101 times forward revenue. On the surface, this suggests BigBear.ai offers better value—a classic low price share appeal. However, looking deeper at the actual business fundamentals, Palantir’s higher valuation reflects its substantially superior operational performance and market position.

Palantir’s valuation structure, while undeniably aggressive, is supported by tangible business metrics. The company trades at 258 times adjusted forward earnings, which speaks to its growth-dependent profile. Yet investors willing to embrace higher risk have found this justified given the company’s execution track record and technological moat.

Operational Performance: The Real Differentiator

The operational metrics reveal why simple price comparison is misleading. Palantir’s most recent quarter showed revenue growth of 63% year-over-year, reaching $1.18 billion. Government revenue specifically expanded 52% to $486 million. More importantly, Palantir maintained a gross margin exceeding 82%—a hallmark of software and services businesses with genuine competitive advantages.

BigBear.ai’s trajectory tells a concerning story. Revenue actually declined 20% year-over-year to $33.1 million in Q3. Perhaps most troubling, the company’s gross margin stands at just 22.4%—dangerously low for any software-focused enterprise. This margin compression suggests either intense competitive pressure or operational inefficiencies that the market cannot ignore.

For context, software companies typically command gross margins in the 70-80% range when positioned properly. BigBear.ai’s 22.4% margin indicates the business is either commoditized, facing severe pricing pressure, or struggling with cost management—none of which are encouraging signs for long-term investors.

The Defense AI Advantage

Both companies operate in defense artificial intelligence, a sector benefiting from robust government spending trends. This favorable backdrop creates tailwinds for multiple participants. However, favorable industry conditions alone don’t guarantee individual company success.

Palantir has emerged as a clear winner through genuine technological advantages. The company’s wins stem from delivering superior solutions that military customers recognize as essential for next-generation defense capabilities. The company has built meaningful moats through proven performance and established relationships.

BigBear.ai, by contrast, has struggled to translate industry momentum into contract wins and revenue growth. The company’s recent acquisition of Ask Sage represents a bet on future synergies, but acquisition-based growth is inherently riskier than organic momentum, particularly for a smaller player competing against an entrenched rival.

Growth Trajectory and Market Position

Palantir’s acceleration in government contracts and consistent margin expansion demonstrate a business that’s both scaling and improving operationally. This combination is rare and valuable. The company’s software-centric model provides leverage—as revenue grows, profitability compounds.

BigBear.ai faces a steeper challenge. With declining revenues and razor-thin margins, the company must fundamentally improve its operational model to compete effectively. The low share price may attract speculative interest, but it doesn’t compensate for the underlying business deterioration.

The Investment Case

While both companies operate in an attractive market, their competitive positioning differs dramatically. Palantir’s valuation, though elevated, reflects a business with genuine competitive advantages, strong growth, and improving profitability. BigBear.ai’s lower valuation multiples come with meaningful operational risks that justify cautious positioning.

For investors seeking exposure to defense AI trends, the more established player with proven execution offers a more compelling risk-reward profile than betting on a smaller competitor struggling with growth and profitability. A low price share alone doesn’t create a compelling investment thesis when fundamental business metrics are deteriorating.